The Search War Is Over

Man, am I tempted to short Yahoo! (Nasdaq: YHOO  ) .

It's not that I dislike co-founder Jerry Yang, who has once again assumed the CEO job. To the contrary. From what little I've seen of him, he appears to be a smart and affable guy. What's more, Yahooligans appear to love him. What better way to make a fresh start?

Um, what fresh start?
If only there were one to be had. Yang says he's dug in for the long haul at Yahoo!, apparently convinced that his team can take on Google (Nasdaq: GOOG  ) and win. Oh, boy.

Let's review the facts. According to Web tracker ComScore, there were more than 7.6 billion searches conducted in May. Google performed 50.7% of them; Yahoo!, by contrast, performed 26.4%. Microsoft's (Nasdaq: MSFT  ) MSN was third with 10.3%. Of the top three, only Yahoo! saw its share of inquiries decline.

See what I mean? When it comes to the Web 1.0 search war, Yahoo! is more like Rocky the Flying Squirrel than Rocky Balboa. (Hellooooo, Frostbite Falls!)

Do you Yahoo! Finance?
That leaves Jerry with two options: increase spending to win the Web 2.0 search war, or build up the services in which Yahoo! has already smoked Google -- services such as Yahoo! Finance.

Think about it. Yahoo! Finance has already equaled Google's interactive charts, sports a better news feed, and offers the key statistics page, which I consider the best 30-second screening tool in investing. Google simply can't touch it.

If there's a problem with Yahoo! Finance, it's that it isn't earning enough cash for a superior product. Advertising is wasted. For example, when I tickered Home Depot (NYSE: HD  ) this morning, I was fed a display ad for Scottrade. Maybe that works once in a great while, but I suspect that most visitors to Yahoo! Finance already have a broker.

But we investors are also consumers. What if that same spot had an ad from Home Depot? What if it were a shareholder-specific coupon? I'm guessing it would draw many more clicks, which means more moola for Yahoo!

And what about related products? How about offering an annual subscription service that allows for access to certain types of brokerage research? That would be infinitely better than selling one-off reports, as Yahoo! now does. Besides, we Fools know as well as anyone else that subscription services can work quite well.

Let the rebels attack
Here's my point: Yahoo! isn't Google, and it shouldn't try to be.

Think of how you use Google. You're at the site for -- what? -- 30 seconds? That's fine by DoubleGoo. Routing you to your ultimate destination is its job. Yahoo!, on the other hand, would prefer that you hang around to listen to some music, research a stock, shop for a car, and find a date.

Many do. With its Mail, Finance, News, and community sites, each month Yahoo! attracts more than 100 million people with money to spend. That's why Tom Gardner made it a Stock Advisor pick.

So, should Yahoo! abandon search? I don't think so. Yahoo! does a much better job than Google at certain types of searches. I always seem to have better luck finding relevant news articles through Yahoo!, for example.

What's more, search technology is an essential element of many Yahoo! services, including HotJobs and Personals. Outsourcing its principal operating technology probably isn't a good idea.

Yet search doesn't give Yahoo! any competitive advantage. Only its services do that. As my buddy Rick Munarriz says: "Yahoo! is a different company, and it should be tempered with different expectations."

Or, in Foolish terms: More Yahoo! Less DoubleGoo. Now that would be a fresh start. What do you say, Jerry?

For related Foolishness:

Yahoo! is a Stock Advisor selection. Get a risk-free month of access to the entire portfolio, which is beating the S&P 500 by more than 36%, right now. There's no obligation to subscribe.

Home Depot and Microsoft are Inside Value picks.

Fool contributor Tim Beyers, who is ranked 2,608 out of more than 31,000 rated investors in CAPS, didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy is more yahooey than gooey.


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